Principal Financial Group is planning to exit most of its business of selling life-insurance and annuities to American consumers, becoming the latest household-name life insurer to get out of these products.

Iowa-based Principal Financial said Monday that it is discontinuing sales of all U.S. retail “fixed annuities” and much of its consumer life-insurance business, and would pursue strategic alternatives for the policies and contracts it has on its books.

It is considering potential divestiture of about $25 billion of reserves related to its overall annuities and life-insurance businesses.

The company said the initiatives would regroup Principal around U.S. and international retirement services, life insurance and other financial products sold as part of employers’ benefits programs and asset management. The moves are the result of a strategic review initiated in February.

Principal follows on the heels of numerous rivals shedding life-insurance and annuity businesses. U.S. life insurers have been struggling with ultralow interest rates and a sluggish sales environment for the large middle-income market.

Over the past decade, dozens of U.S. life insurers have divested blocks of older policies, and even entire operating units. While MetLife Inc. spun off operations to its shareholders to create Brighthouse Financial Inc., French giant AXA SA pursued an initial public offering of stock of its U.S. life insurance unit, now known as Equitable Holdings Inc.

Some insurers have divested through sales.

In these instances, buyers typically have been private-equity-backed firms and other investment entities. Those investment firms are employing different strategies in search of profits, including earning fees on the money they manage for their insurers and adding more alternative investments to the insurers’ portfolio mixes, and gaining economies of scale.

The fixed annuities that Principal Financial aims to divest are somewhat akin to bank certificates of deposit, in that consumers hand over lump sums in exchange for promised interest payments and the return of the principal at a future date.

Life insurers earn much of their profit by investing customers’ premiums in bonds until claims come due. While U.S. interest rates are up from the depths of 2020 when the Covid-19 pandemic was rapidly spreading, more insurers have thrown in the towel on offerings highly dependent on interest income. The pace of divestitures picked up last year.

“The decline in interest rates and the likelihood of the ‘low for long/forever’ scenario” is driving deal activity, said Colin Devine, an industry consultant with C. Devine & Associates.

In 2017, MetLife hived off much of its U.S. retail life-insurance operations into Brighthouse. In January, Voya Financial Inc. closed on the sale of substantially all of its individual life-insurance business to Resolution Life Group Holdings Ltd. Resolution Life is the newest acquisition vehicle for a British firm specializing in the winding down of life-insurance policies. Part of its profit equation is building up economies of scale.

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Principal Financial Chief Executive Dan Houston said in a news release that the changes are aimed at bolstering the company’s position in markets with higher growth opportunities. He said the moves would “reduce complexity and risk, improve our return profile” and increase cash flow.

The company also announced a new $1.2 billion share-repurchase authorization.

The company said the review was undertaken as a part of a cooperation agreement with one of Principal’s largest investors, Elliott Investment Management LP

Write to Leslie Scism at leslie.scism@wsj.com